Sunday, 25 June 2017

Let me tell
you something fascinating about the welfare state. As a society almost every
single individual in the UK is in favour of it, but yet each individual, if
asked to pay some kind of hypothetical pre-birth Rawlsian insurance to act as a
safety net in case they required it themselves, wouldn't actually pay it (this
is based on research in America, so one can assume it would likely apply here
too). This would suggest that, in actual fact, society's collective preference
for a welfare state is more akin to an Abilene
paradox, where every individual feels everyone else is in favour of a fairly large welfare
state, so feels they ought to be too.

A generally good rule of thumb in life is that you can see how much people value things by how they
behave. From what I remember, your chance of dying on the road in a car is
something like 5,000 to 1. Would you pay an extra £10 a day to increase those
odds to 6,000 to 1? I highly doubt it, and neither would I.
Would you pay an additional £5 per year to reduce those odds to 500,000 to 1?
You possibly would, and so would I. This signals how much we value a reduced
probability of dying against a certain financial cost such as insurance.
Personally I don't value insurance very highly generally - so for example, I
would not insure white goods or a bicycle I'd purchased., but many people would.

Now suppose you got to make a pre-birth insurance decision before you know
anything about what kind of person you're going to be, the indication is that
you wouldn't pay anything. For all you know you're going to be born in the
shallow end of the talent pool, yet research shows you’re prepared to take the
risk and not pay the insurance premium. I think the central reason for this is
the disincentive effects – that is, the main problem with a safety net is that
it is open to being (at worst) abused and (at best) something upon which people
can become overly dependent. The study showed that individual preference, in a
pre-birth decision scenario (there are parallels of Harsanyi’s amnesia
principle here), favoured a welfare state that contained a population of
just 0.6% (that’s six tenths of a percent) of the population.

Obviously I’m
taking this as precluding pensioner welfare and people who’ve paid a lot into
the system but need to claim a bit back due to short-term unemployment. This is
really about long-term dependents, people struggling to find work, people
abusing the system and people using welfare as a lifestyle choice. I should
imagine the general feeling is that this ‘0.6% of the population on welfare’
ideal, which in terms of UK population would be approximately 390,000 people,
is largely confined to people with disabilities and barriers to work (although
apparently that number far exceeds 390,000, it’s more like 11
million).

It would seem that when we are being most candid with no public pressure to
conform to a certain viewpoint, the UK as a population is glad to have a small welfare
state for society's most needy, but is furtively quite narked about the proportion
of the welfare state that enables otherwise work-fit and able people to enjoy a
life of taxpayer-subsidised leisure.

There are obvious reasons why this is the case, and they are nearly all underpinned
by one governing principle: that people feel it is unfair when they have to pay
for benefits for others that they cannot enjoy themselves. A good example is leisure.
People who work a 40 hour week have less leisure time than people who have a 40
hour leisure week and claim jobseeker's allowance. An even bigger example, and
one that is far less obvious, is parenthood. People who cannot afford to have 3
or 4 children are subsidising people who can, because according to Aviva it costs
upwards of £270,000 to raise a child up to the age of 21.

Or to put it another way, if it costs £810,000 to raise 3 children, and £1,080,000
to raise 4 children, it stands to reason that for most people you have to be on
benefits to afford to support families of that size and larger. Working people
cannot afford to have as many children as people on benefits, and the most
expensive thing working people have to pay for is the state. Moreover,
state-mandated reallocations from middle earners to benefit claimants
incentivises benefit claimants to have more children (and equally more people to
become benefit claimants) and this increases the cost of the state further, while at
the same time reducing the opportunity for more middle earners to have
children.

There is no easy solution to this problem - we cannot put a cap on the number
of children people can have, and we cannot live in a society where children go
hungry. But I have three principal must-haves for a well-functioning welfare
system, and it would appear that in the deepest recesses of their honesty,
people agree with me. They are:

1)
The idea of a redistributive system whereby those who are best off do their bit
to help those who are least able.

2)
The redistribution system must guard heavily against incentives to abuse it or
become overly-dependent on it.

3)
In terms of taxing those most able to help those least able, it is best to tax
in ways that do not discourage work, innovation or productivity.

Pretty
much everyone already openly agrees with number 1, and pretty much everyone
agrees with number 2, although they are more cautious about admitting it. But
judging by the current state system of redistributive taxation, an awful lot of
people have not got to grips with number 3 yet, which is a shame because getting
number 3 right is the most effective way of helping people on benefits.

Finally, the 2016
release of the much lauded movie I, Daniel
Blake by Ken Loach, and the rise of Jeremy Corbyn in the same year, has
prompted thousands of people to take to the streets and declare war on a
capitalist system that has left benefit claimants maltreated and disregarded by heartless bureaucrats.
While I'm sure there are plenty of people for whom this has been the case, when
it comes to the overall picture, nothing could be further from the truth.

The stats are far too
numerous and lengthy for this blog post, but go and research just how much the
welfare state has expanded and proliferated as a proportion of GDP since Ken
Loach first began his film career, and you'll see it is gigantic compared with
50 years ago. Consequently, Loach and Corbyn - the self-proclaimed defenders of
the poor - are picking the wrong enemy in capitalism, because it is only thanks to the
kind of economic growth that comes from trade and competition that we can
afford such a large and costly welfare state.

About Me

This is the Blog of James Knight - a keen philosophical commentator on many subjects.
My primary areas of interest are: philosophy, economics, politics, mathematics, physics, biology, chemistry, theology, psychology, history, the arts and social commentary.
I also contribute articles to the Adam Smith Institute and the Institute of Economics Affairs.
Hope you enjoy this blog! Always happy to hear from old friends and new!
Email:j.knight423@btinternet.com